Q2 2016 Highlights
-- Revenues of $16.0 million
-- EBITDA(i) of $7.1 million, or $0.06 per basic share
-- Cash balance increased to $103.7 million at June 30, 2016
-- Returned $2.0 million to shareholders in dividend payments and buyback
purchases
-- Acquired a patent portfolio from SRI International covering technologies
used for intelligent personal assistants in handsets and tablets
-- Acquired patents from Barron Associates related to fitness tracking
technology used in wearable devices
-- Entered into partnerships with University of Waterloo and University of
Saskatchewan
Year-to-Date 2016 Highlights
-- Revenues of $46.1 million
-- EBITDA(i) of $27.0 million, or $0.23 per basic share
-- GAAP net earnings of $1.8 million, or $0.01 per basic share
-- Returned $5.4 million to shareholders in dividend payments and buyback
purchases
"Operational highlights in the quarter centered on the partnerships we signed with two of Canada's top Universities - the University of Waterloo and University of Saskatchewan - and on the patent acquisitions we made," said Jim Skippen, CEO of WiLAN. "The patents acquired from SRI International have a particularly noteworthy background since they were filed in connection with the development of the product that eventually became the SIRI voice-activated assistance program that is used in many Apple products."
Added Skippen, "As evidenced by our results so far in 2016, our financial performance can fluctuate quarter to quarter depending on the size and timing of new licenses. While this is a fact of life for every business in the patent industry, we believe we are firmly on track to continue growing over the long-term. Heading into the second half of 2016, we have 43 partners, 50 patent portfolios and more than 60 ongoing litigations, which collectively form a solid pipeline of license opportunities to drive future results."
Approval of Eligible Dividend
The Board of Directors declared an eligible quarterly dividend of CDN $0.0125 per common share to be paid on October 6, 2016, to shareholders of record on September 16, 2016.
Q2 and Year-to-Date 2016 Revenue Review
In the three month period ended June 30, 2016, WiLAN generated revenues of $16.0 million, compared with $35.0 million in the same period last year. In the six month period ended June 30, 2016, WiLAN generated revenues of $46.1 million, compared with $55.4 million in the same period last year.
The difference in revenue for both periods is primarily attributable to a greater level of fixed payment license agreements signed during the three month period ended June 30, 2015, and in particular, due to a large license agreement signed with Samsung in that period.
Q2 and Year-to-Date 2016 Operating Expense Review
Cost of revenue expenses
In the three month period ended June 30, 2016, cost of revenue totaled $16.1 million compared with $16.1 million in the same period last year. In the six month period ended June 30, 2016, cost of revenue totaled $34.1 million compared with $35.6 million in the same period last year.
The decrease in cost of revenue for the six month period ended June 30, 2016, is primarily attributable to a decrease in litigation expense partially offset by an increase in patent maintenance, prosecution, and evaluation costs, contingent partner payments and legal fees, and amortization expense. In general, patent licensing expenses are proportional to the breadth and depth of our licensing programs and should be expected to increase as we add programs to our business operations.
------------------------------------------------
------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
------------------------------------------------
------------------------------------------------
Compensation and benefits $ 2,313 $ 1,952 $ 4,166 $ 3,944
Litigation 596 3,145 1,488 9,385
Patent maintenance,
prosecution, and evaluation 2,377 1,352 5,425 2,696
Contingent partner payments
and legal fees 797 121 2,725 776
Amortization of patents 9,850 9,134 19,872 17,979
Stock-based compensation 45 112 135 238
Other 165 315 324 579
------------------------------------------------
$ 16,143 $ 16,131 $ 34,135 $ 35,597
------------------------------------------------
------------------------------------------------
In the three month period ended June 30, 2016, litigation expenses were $0.6 million compared with $3.1 million in the same period last year. In the six month period ended June 30, 2016, litigation expenses amounted to $1.5 million compared with $9.4 million in the same period last year. The decrease in litigation expense for the three and six month periods ended June 30, 2016, is primarily due to an increase in shared risk fee arrangements with external legal counsel in comparison to the same period last year. The contingent-fee arrangements with external legal counsel are part of WiLAN's strategy to align incentives with its partners and to keep costs down.
Litigation expenses are expected to vary from period to period due to the level of litigation activities and shared risk fee arrangements in place at the time. The Company expects a decrease in litigation expenses in fiscal 2016 as a result of the expected level of litigation activities and corresponding contingent-fee arrangements.
Patent maintenance and prosecution expenses increased over the same period last year as a result of the higher number of patents and applications the Company currently maintains. The Company is actively working to reduce the number of non-core patents in its portfolio through a combination of strategic sales, lifetime licenses and, in certain cases, the abandonment or dedication to the public of several patents and applications.
Marketing, general, and administration expenses ("MG&A")
In the three month period ended June 30, 2016, MG&A expenses amounted to $2.8 million, or 17% of revenue, compared with $2.2 million, or 6% of revenue, in the same period last year. In the six month period ended June 30, 2016, MG&A expenses amounted to $5.4 million, or 12% of revenue, compared with $4.5 million, or 8% of revenue, in the same period last year. These costs will vary from period to period depending on the activities and initiatives undertaken at that time.
------------------------------------------------
------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
------------------------------------------------
------------------------------------------------
Compensation and benefits $ 1,645 $ 758 $ 2,947 $ 1,949
Depreciation 106 108 213 226
Stock-based compensation 1 72 18 188
Public company costs 447 410 1,147 725
Facilities 148 152 317 301
Other 405 712 757 1,074
------------------------------------------------
$ 2,752 $ 2,212 $ 5,399 $ 4,463
------------------------------------------------
------------------------------------------------
Research and development expenses ("R&D")
Restructuring activities, which commenced in October 2015, resulted in the elimination of WiLAN's R&D activities and, therefore, the Company does not expect to incur any expenses related to R&D in 2016. The Company does not expect the elimination of its R&D activities to have a material impact, if any, on its business activities.
Foreign Exchange
In the three month period ended June 30, 2016, WiLAN incurred a foreign exchange gain of $0.1 million compared with a negligible loss in the same period last year. In the six month period ended June 30, 2016, the Company incurred a foreign exchange gain of $0.3 million compared with a loss of $2.3 million in the same period last year.
The unrealized foreign exchange gains of $0.1 million and $0.3 million recognized in the three and six month periods ended June 30, 2016, respectively, resulted from the translation of monetary accounts, primarily cash and cash equivalents, short-term investments, dividends, and accounts payable, denominated in Canadian dollars to U.S. dollars. The change from last year is attributable to the decrease in the level of monetary accounts denominated in Canadian dollars and the Canadian dollar strengthening relative to the U.S. dollar.
EBITDA
In the three month period ended June 30, 2016, WiLAN generated EBITDA of $7.1 million, or $0.06 per basic share, compared with $25.2 million, or $0.21 per basic share, in the same period last year. In the six month period ended June 30, 2016, WiLAN generated EBITDA of $27.0 million, or $0.23 per basic share, compared with $29.8 million, or $0.25 per basic share, in the same period last year.
Net Earnings
In the three month period ended June 30, 2016, WiLAN's GAAP net loss was $3.2 million, or $(0.03) per basic share, compared with GAAP earnings of $11.0 million, or $0.09 per basic share, in the same period last year. In the six month period ended June 30, 2016, WiLAN's GAAP earnings were $1.8 million, or $0.01 per basic share, compared with GAAP earnings of $6.2 million, or $0.05 per basic share, in the same period last year.
Second Quarter 2016 Balance Sheet and Cash Flow Review
At June 30, 2016, the Company's cash, which is comprised of cash and cash equivalents and short-term investments, totaled $103.7 million, representing an increase of $1.8 million from the cash position at March 31, 2016, and an increase of $9.1 million from the cash position at December 31, 2015. The increase from December 31, 2015, is primarily attributable to $23.1 million of cash generated from operations, which was partially offset by the payment of dividends totaling $2.2 million, the repurchase of common shares under a normal course issuer bid totaling $3.1 million and patent acquisitions totaling $8.9 million which includes payments totaling $2.8 million for the repayment of patent finance obligations for patents acquired in 2013 and payments totaling $6.0 million for patents acquired in 2015.
Fiscal 2016 Financial Guidance
Cash operating expenses for the third quarter 2016 are expected to be in the range of $9.7 million to $11 million, of which $2.7 million to $3.1 million is expected to be litigation expense. These expenses exclude any contingent partner payments and contingent legal fees.
Conference Call Information - July 28, 2016 - 10:00 AM ET
WiLAN will conduct a conference call to discuss its financial results today at 10:00 AM Eastern Time. WiLAN CEO, Jim Skippen and CFO, Shaun McEwan will host the call.
Webcast
A live audio webcast will be available at: http://www.gowebcasting.com/events/wilan/2016/07/28/second-quarter-2016-results/play
Dial-in
-- To access the call from Canada and U.S., dial 1.866.393.4306 (Toll Free)
-- To access the call from other locations, dial 1.734.385.2616
(International)
Replay Information
A replay of the call will be available at http://www.gowebcasting.com/events/wilan/2016/07/28/second-quarter-2016-results/play
A replay will also be accessible by telephone until 11:59 PM ET on August 5, 2016.
-- Replay Number: 1.855.859.2056 (Toll Free) or 1.404.537.3406
(International)
-- Conference ID #: 48918876
About WiLAN
WiLAN is one of the most successful patent licensing companies in the world and helps companies unlock the value of intellectual property by managing and licensing their patent portfolios. The Company operates in a variety of markets including automotive, digital television, Internet, medical, semiconductor and wireless communication technologies. Founded in 1992, WiLAN is listed on the TSX and NASDAQ. For more information: www.wilan.com.
Non-GAAP Disclosure(i)
WiLAN follows U.S.GAAP in preparing its interim and annual financial statements. We use the term "EBITDA" to reference Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA are earnings from continuing operations before interest income, interest expense, depreciation expense, amortization expense, and the provision for (recovery of) income taxes as disclosed in the reconciliation of GAAP net earnings to EBITDA included in this press release. We report EBITDA in the belief that it may be useful for certain investors and readers of the financial statements as a measure of our performance. EBITDA IS NOT A MEASURE OF FINANCIAL PERFORMANCE UNDER U.S. GAAP. IT DOES NOT HAVE ANY STANDARDIZED MEANING PRESCRIBED BY U.S. GAAP AND IS THEREFORE UNLIKELY TO BE COMPARABLE TO SIMILARLY TITLED MEASURES USED BY OTHER COMPANIES. EBITDA SHOULD NOT BE INTERPRETED AS AN ALTERNATIVE TO NET EARNINGS AND CASH FLOWS FROM OPERATIONS AS DETERMINED IN ACCORDANCE WITH U.S. GAAP OR AS A MEASURE OF LIQUIDITY.
Forward-looking Information
This news release contains forward-looking statements and forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other United States and Canadian securities laws. The phrases "reflect the scalability and profitability in our model and its ability to deliver results over the long-term", "should be expected to increase", "we expect a decrease", "the Company is actively working to reduce", "we do not expect", "are expected to be", "is expected to be" and similar terms and phrases are intended to identify these forward-looking statements. Forward-looking statements and forward-looking information are based on estimates and assumptions made by WiLAN in light of its experience and its perception of historical trends, current conditions, expected future developments and the expected effects of new business strategies, as well as other factors that WiLAN believes are appropriate in the circumstances. Many factors could cause WiLAN's actual performance or achievements to differ materially from those expressed or implied by the forward-looking statements or forward-looking information. Such factors include, without limitation, the risks described in WiLAN's February 8, 2016 annual information form for the year ended December 31, 2015 (the "AIF"). Copies of the AIF may be obtained at www.sedar.com or www.sec.gov. WiLAN recommends that readers review and consider all of these risk factors and notes that readers should not place undue reliance on any of WiLAN's forward-looking statements. WiLAN has no intention and undertakes no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
Financial guidance is provided to assist investors and other interested parties in understanding WiLAN's performance. The reader is cautioned that using this information for any other purpose may be inappropriate.
The above targets reflect our current business indicators and expectations and are subject to fluctuations in foreign currency exchange rates. Due to their nature, certain expense items, such as new litigation actions, contingent payments to licensing partners and litigation counsel that may be required from certain licenses signed in any particular quarter, losses on asset impairments or realized foreign exchange losses cannot be accurately forecast. Accordingly, we exclude forecasts of such items from our guidance. Actual expenses incurred may exceed the expense guidance provided due, in part, to contingent payments to licensing partners and litigation counsel that may be required from certain licenses signed during the quarter.
Actual results may vary materially from the guidance provided as a consequence of the above noted factors.
All trademarks and brands mentioned in this release are the property of their respective owners.
Wi-LAN Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands of United States dollars, except share and per share amounts)
Three months
ended Six months Six months
Three months ended June 30, ended ended
June 30, 2016 2015June 30, 2016 June 30, 2015
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 15,961 $ 34,990 $ 46,121 $ 55,400
Operating expenses
Cost of revenue 16,143 16,131 34,135 35,597
Research and
development - 713 - 1,432
Marketing, general
and administration 2,752 2,212 5,399 4,463
Foreign exchange
(gain) loss (114) 8 (277) 2,294
------------------------------------------------------
Total operating
expenses 18,781 19,064 39,257 43,786
------------------------------------------------------
Earnings (loss) from
operations (2,820) 15,926 6,864 11,614
Interest income 120 119 238 241
------------------------------------------------------
Earnings (loss) before
income taxes (2,700) 16,045 7,102 11,855
Provision for
(recovery of) income
tax expense
Current 837 1,031 3,860 2,034
Deferred (385) 4,056 1,474 3,621
------------------------------------------------------
452 5,087 5,334 5,655
------------------------------------------------------
Net and comprehensive
earnings (loss) (3,152) 10,958 1,768 6,200
------------------------------------------------------
------------------------------------------------------
Earnings (loss) per
share
Basic $ (0.03) $ 0.09 $ 0.01 $ 0.05
Diluted $ (0.03) $ 0.09 $ 0.01 $ 0.05
Weighted average
number of common
shares
Basic 119,255,090 120,747,848 119,768,540 120,610,828
Diluted 119,255,090 120,749,618 119,768,540 120,647,995
------------------------------------------------------
------------------------------------------------------
Wi-LAN Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands of United States dollars)
June 30, December 31,
As at 2016 2015
------------------------------
------------------------------
Current assets
Cash and cash equivalents $ 102,518 $ 93,431
Short-term investments 1,200 1,120
Accounts receivable 7,612 8,436
Prepaid expenses and deposits 1,467 1,607
------------------------------
112,797 104,594
Loan receivable 1,625 1,497
Furniture and equipment, net 1,427 1,614
Patents and other intangibles, net 135,901 155,213
Deferred tax asset 16,202 17,677
Goodwill 12,623 12,623
------------------------------
$ 280,575 $ 293,218
------------------------------
------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 16,727 $ 23,205
Current portion of patent finance obligation 7,207 8,085
------------------------------
23,934 31,290
Patent finance obligation 18,407 19,895
Success fee obligation 140 655
------------------------------
42,481 51,840
------------------------------
Shareholders' equity
Capital stock 421,675 427,781
Additional paid-in capital 19,848 16,549
Accumulated other comprehensive income 16,225 16,225
Deficit (219,654) (219,177)
------------------------------
238,094 241,378
------------------------------
$ 280,575 $ 293,218
------------------------------
------------------------------
Wi-LAN Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of United States dollars)
Three
months Six months Six months
Three months ended ended ended ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
---------------------------------------------------
---------------------------------------------------
Cash generated from (used
in)
Operations
Net earnings (loss) $ (3,152) $ 10,958 $ 1,768 $ 6,200
Non-cash items
Stock-based
compensation 46 210 154 482
Depreciation and
amortization 9,956 9,242 20,086 18,230
Foreign exchange
(gain) loss (105) (79) (390) 674
Disposal of assets - - 13 -
Deferred income tax
expense (recovery) (385) 4,056 1,474 3,621
Accrued investment
income (64) (55) (128) (110)
Change in non-cash
working capital
balances
Accounts receivable 3,399 (15,512) 824 (14,215)
Prepaid expenses and
deposits 114 (252) 140 (973)
Payments associated
with success fee
obligation (877) (971) (1,732) (2,145)
Accounts payable and
accrued liabilities (678) (407) 853 (2,212)
---------------------------------------------------
Cash generated from
operations 8,254 7,190 23,062 9,552
---------------------------------------------------
Financing
Dividends paid (1,151) (5,005) (2,242) (10,188)
Common shares
repurchased under
normal course issuer
bid (852) - (3,123) (329)
Common shares issued
for cash on the
exercise of options 11 - 11 1,269
Common shares issued
for cash from Employee
Share Purchase Plan 35 81 35 81
---------------------------------------------------
Cash used in financing (1,957) (4,924) (5,319) (9,167)
---------------------------------------------------
Investing
Purchase of furniture
and equipment (24) (86) (39) -
Repayment of patent
finance obligations (1,389) (5,532) (2,777) (114)
Purchase of patents (3,150) (1,099) (6,150) (13,164)
---------------------------------------------------
Cash used in investing (4,563) (6,717) (8,966) (13,278)
---------------------------------------------------
Foreign exchange gain
(loss) on cash held in
foreign currency 99 62 310 (579)
---------------------------------------------------
Net cash and cash
equivalents generated
(used) in the period 1,833 (4,389) 9,087 (13,472)
Cash and cash
equivalents, beginning
of period 100,685 117,228 93,431 126,311
---------------------------------------------------
Cash and cash
equivalents, end of
period $ 102,518 $ 112,839 $ 102,518 $ 112,839
---------------------------------------------------
---------------------------------------------------
Wi-LAN Inc.
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
(in thousands of United States dollars)
Accumulated
Additional Other
Capital Paid-in Comprehensive Total
Stock Capital Income Deficit Equity
------------------------------------------------------------
------------------------------------------------------------
Balance -
December 31,
2014 $ 426,037 $ 16,375 $ 16,225 $ (212,880) $ 245,757
Comprehensive
earnings:
Net earnings - - - 6,200 6,200
Shares and
options issued:
Stock-based
compensation
expense - 482 - - 482
Exercise of
stock options 2,056 (787) - - 1,269
Shares
repurchased
under normal
course issuer
bid (443) 114 - - (329)
Dividends
declared - - - (10,313) (10,313)
------------------------------------------------------------
Balance - June
30, 2015 $ 427,650 $ 16,184 $ 16,225 $ (216,993) $ 243,066
Balance -
December 31,
2015 $ 427,781 $ 16,549 $ 16,225 $ (219,177) $ 241,378
Comprehensive
earnings:
Net earnings - - - 1,768 1,768
Shares and
options issued:
Stock-based
compensation
expense - 154 - - 154
Conversion of
deferred
stock units
to common
shares 116 - - - 116
Exercise of
options 17 (6) - - 11
Sale of shares
under
Employee
Share
Purchase Plan 35 - - - 35
Shares
repurchased
under normal
course issuer
bid (6,274) 3,151 - - (3,123)
Dividends
declared - - - (2,245) (2,245)
------------------------------------------------------------
Balance - June
30, 2016 $ 421,675 $ 19,848 $ 16,225 $ (219,654) $ 238,094
------------------------------------------------------------
------------------------------------------------------------
Wi-LAN Inc.
Reconciliation of GAAP Net Earnings to EBITDA
(in thousands of United States dollars, except share and per share amounts)
Three months ended Six months ended
--------------------------------------------------------
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
--------------------------------------------------------
--------------------------------------------------------
Net earnings (loss)
under GAAP $ (3,152) $ 10,958 $ 1,768 $ 6,200
Adjusted for:
Interest income (120) (119) (238) (241)
Depreciation and
amortization 9,956 9,242 20,086 18,230
Income tax expense 452 5,087 5,334 5,655
--------------------------------------------------------
EBITDA $ 7,136 $ 25,168 $ 26,950 $ 29,844
--------------------------------------------------------
--------------------------------------------------------
Weighted average
number of common
shares (1)
Basic 119,255,090 120,747,848 119,768,540 120,610,828
Earnings (loss) per
basic share under
GAAP $ (0.03) $ 0.09 $ 0.01 $ 0.05
Adjusted for:
Interest income (0.00) (0.00) (0.00) (0.00)
Depreciation and
amortization 0.08 0.08 0.17 0.15
Income tax expense 0.00 0.04 0.04 0.05
--------------------------------------------------------
EBITDA per basic
share $ 0.06 $ 0.21 $ 0.23 $ 0.25
1. Weighted average number of commons shares used in the calculation of
EBITDA per basic share and earnings per basic share under GAAP.
Contacts: For media and investor inquiries, please contact: Shaun McEwan Chief Financial Officer O: 613.688.4898 C: 613.697.7159 E: Email Contact Dave Mason Investor Relations T: 613.688.1693 E: Email Contact